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El Paso Pipeline Partners, L.P. Message Board

  • el1genio el1genio Jan 22, 2014 9:02 PM Flag

    Now is the time KMP should takeout EPB

    Eventually KMP will takeout EPB. Why have separate entities for the same entity ? With EPB being irrationally beaten down and a MLP merger that is going to take place eventually anyways, why not now ? No reason to have separate exchange fees, get rid of current EPB management and other corporate fat,have one accounting team, consolidated filings, marketing,legal ect. Why not buy it on the cheap ? KMP should simply exchange one half of share of KMP for each outstanding share of EPB. This would be fair for all and accretive for KMP.

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    • This raises the question of who is driving down the EPB share price?

      • 1 Reply to cbushell1134
      • I'd throw out a guess:

        The market is simply adjusting the price of EPB to reflect the fact that it will likely have a stagnant distribution for '14, '15 & '16, with growth likely returning in '17 (per Kinder Morgan Analyst conference, and also in the ppt which is archived on the website).

        The market pays up for growth. Companies that are growing their distribution at a 5% or better annual clip, get rewarded with a lower yield (a higher valuation on that rising income stream).

        EPB's in a rough patch. They have drop downs that will help them weather the storm (see BWP). I have no idea of knowing where the bottom is, but based on other midstream MLPs that have either low or no distribution growth, I'd say the 8.5%-9.0% yield seems fitting. With that being said, I think EPB is likely getting close to the bottom (but hey, the market may overreact and prove me wrong).

        I think those that are looking for high growth may be bailing out, but at this point, they've left a lot of cash on the table and one has to wonder if they are really going to recognize that much of a loss or ride it out.

        For income seekers, it isn't fun to watch capital erosion, but most will likely keep collecting the distributions every quarter and look forward to '17...

    • EPB currently has the role for the elba island LNG export terminal.
      Kinder may keep EPB separate for that purpose.

    • Why not now?
      Because by waiting they can get it cheaper simply by facilitating distribution growth at KMP but none at EPB. KMP units will rise in price whereas EPB will be flat or slightly down. As KMP units would be the currency for the transaction, this means that the longer they wait the better the terms for KMP.

      Note that GS are saying no distribution growth at EPB through 2017.

      • 1 Reply to lizahuang54321
      • Hmm, had not seen the 2017 comment from Goldman Sachs.

        The roll up of EPB into KMP is harder than it appears because KMP's IDR load is much larger. A conversion of EPB to KMP units would require a large IDR waiver from KMI. Likely a staggered waiver.

        I actually like EPB at these prices, event absent distribution growth, which seems unlikely for '14, but I am not convinced EPB won't grow some in '15-'17. Even modest 3-4% distribution growth will help bring EPB's price back where it can be an equity again. I suspect that Kinder may indeed use EPB as a second financing vehicle, at least, given the cheaper cost of equity, it would make sense. I guess we'll have to wait and see.

    • I like your stock idea - I'm in.

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